<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarterly Period Ended April 4, 1999
Commission File Number 0-12016
------------------------------
INTERFACE, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1451243
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 PACES FERRY ROAD, SUITE 2000, ATLANTA, GEORGIA 30339
---------------------------------------------------------
(Address of principal executive offices and zip code)
(770) 437-6800
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
Shares outstanding of each of the registrant's classes of common stock
at May 11, 1999:
Class Number of Shares
- ---------------------------------------------- ----------------
Class A Common Stock, $.10 par value per share 46,408,530
Class B Common Stock, $.10 par value per share 6,373,834
<PAGE>
<PAGE>
INTERFACE, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets - April 4, 1999 and January 3, 1999 3
Statements of Income - Three Months Ended 4
April 4, 1999 and April 5, 1998
Statements of Comprehensive Income - Three Months 4
Ended April 4, 1999 and April 5, 1998
Statements of Cash Flows - Three Months 5
Ended April 4, 1999 and April 5, 1998
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Oprations 12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
2<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
ASSETS APRIL 4, JANUARY 3,
------ 1999 1999
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,948 $ 9,910
Accounts Receivable 206,521 194,803
Inventories 201,316 199,338
Prepaid Expenses 36,831 26,607
Deferred Tax Asset 7,851 7,866
---------- ----------
TOTAL CURRENT ASSETS 455,467 438,524
PROPERTY AND EQUIPMENT, less
accumulated depreciation 243,834 245,312
EXCESS OF COST OVER NET ASSETS ACQUIRED 286,230 302,969
OTHER ASSETS 59,887 50,059
---------- ----------
$1,045,418 $1,036,864
========== ==========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
-------------------------------------------
CURRENT LIABILITIES:
Notes Payable $ 17,210 $ 26,855
Accounts Payable 64,643 80,154
Accrued Expenses 96,394 115,317
Current Maturities of Long-Term Debt 2,809 2,786
---------- ----------
TOTAL CURRENT LIABILITIES 181,056 225,112
LONG-TERM DEBT, less current maturities 175,159 112,651
SENIOR NOTES 150,000 150,000
SENIOR SUBORDINATED NOTES 125,000 125,000
DEFERRED INCOME TAXES 23,352 23,482
---------- ----------
TOTAL LIABILITIES 654,567 636,245
---------- ----------
Minority Interest 1,897 1,795
Common Stock 6,086 5,983
Additional Paid-In Capital 233,703 231,959
Retained Earnings 222,441 219,230
Accumulated Other Comprehensive Income - Foreign Currency
Translation (39,048) (31,668)
Minimum Pension Liability Adjustment (6,399) (6,399)
Treasury Stock, 8,168,000, Class A Shares, at Cost (27,829) (20,281)
---------- ----------
$1,045,418 $1,036,864
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
---------------------------
APRIL 4, APRIL 5,
1999 1998
---- ----
<S> <C> <C>
Net Sales $ 307,866 $ 318,952
Cost of Sales 211,258 211,191
------- -------
Gross Profit on Sales 96,608 107,761
Selling, General and Administrative Expenses 76,702 80,623
------- -------
Operating Income 19,906 27,138
Other (Expense) Income - Net 10,715 10,418
------- -------
Income before Taxes on Income 9,191 16,720
Taxes on Income 3,585 6,437
------- -------
Net Income $ 5,606 $ 10,283
======= ========
Basic Earnings Per Share $ .11 $ .21
===== =====
Diluted Earnings Per Share $ .11 $ .20
===== =====
Average Shares Outstanding -- Basic 52,603 48,558
------ ------
Average Shares Outstanding -- Diluted 52,792 50,778
------ ------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<TABLE>
<CAPTION>
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
------------------
APRIL 4, APRIL 5,
1999 1998
---- ----
<S> <C> <C>
Net Income $ 5,606 $ 10,283
Other Comprehensive Income, Foreign
Currency Translation Adjustment ( 7,380) (5,538)
-------- --------
Comprehensive Income $ (1,774) $ 4,745
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
------------------
APRIL 4, APRIL 5,
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ (50,724) $ (8,415)
------- ------
INVESTING ACTIVITIES:
Capital expenditures (9,128) (11,307)
Acquisitions/Divestiture of businesses 8,700 (40,853)
Other (1,576) (4,565)
------ ------
(2,004) (56,725)
------ ------
FINANCING ACTIVITIES:
Net borrowing (reduction) of long-term debt 55,041 (2,312)
Issuance/Repurchase of common stock (6,708) 68,464
Dividends paid (2,418) (1,820)
------ ------
45,915 64,332
------ ------
Net cash provided by (used for) operating,
investing and financing activities (6,813) (808)
Effect of exchange rate changes on cash (149) (52)
------ ------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the period (6,962) (860)
Balance at beginning of period 9,910 10,212
------ ------
Balance at end of period $2,948 $9,352
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5<PAGE>
<PAGE>
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 1 - CONDENSED FOOTNOTES
As contemplated by the Securities and Exchange Commission (the
Commission ) instructions to Form 10-Q, the following footnotes have
been condensed and, therefore, do not contain all disclosures required
in connection with annual financial statements. Reference should be
made to the notes to the Company's year-end financial statements
contained in its Annual Report to Shareholders for the fiscal year
ended January 3, 1999, as filed with the Commission.
The financial information included in this report has been
prepared by the Company, without audit, and should not be relied upon
to the same extent as audited financial statements. In the opinion of
management, the financial information included in this report contains
all adjustments (all of which are normal and recurring) necessary for
a fair presentation of the results for the interim periods.
Nevertheless, the results shown for interim periods are not
necessarily indicative of results to be expected for the full year.
NOTE 2 - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
April 4, January 3,
1999 1999
---- ----
<S> <C> <C>
Finished Goods $127,604 $123,941
Work in Process 30,531 31,908
Raw Materials 43,181 43,489
$201,316 $199,338
</TABLE>
NOTE 3 - BUSINESS ACQUISITIONS AND DIVESTITURES
During the first quarter of 1999, the Company completed the sale
of Joseph, Hamilton & Seaton Ltd., a U.K.-based contract carpet
distributor acquired as part of the Readicut transaction. The Company
received cash consideration of approximately $11.2 million in the
sale.
During the first quarter, the Company also acquired three service
companies located in the U.S. As consideration in the acquisitions,
the Company issued Common Stock valued at approximately $.8 million
and paid $1.1 million in cash. All transactions have been accounted
for as purchases and accordingly, the results of operations of the
acquired companies have been included within the consolidated
financial statements since their acquisition dates. The excess of the
purchase price over the fair value of the net assets acquired was
approximately $1.0 million and is being amortized over 25 years.
During 1998, the Company acquired four floorcovering contractors,
four carpet maintenance companies, two additional service companies,
and a raised/access flooring manufacturer, all located in the U.S.
The Company also purchased the vinyl floorcoverings business of Scan-
Lock A/S located in Denmark, and Glenside Fabrics Limited, a
manufacturer of upholstery fabrics, located in Meltham, U.K. As
consideration for the acquisitions, the Company issued Common Stock
valued at approximately $1.0 million, $16.9 million in cash, and
$.2 million in a note receivable. All transactions have been
accounted for as purchases, and accordingly, the results of operations
of the acquired companies have been included within the consolidated
financial statements since their acquisition dates. The excess of the
purchase price over the fair value of the net assets acquired was
approximately $11.7 million and is being amortized over periods of 25
to 40 years.
NOTE 4 - CONCURRENT PUBLIC OFFERINGS
On April 2, 1998, the Company completed concurrent public
offerings of $150 million aggregate principal amount of 7.30% Senior
Notes due 2008 and 3,450,000 shares of Class A Common Stock. The
Company used the net proceeds of both offerings of $212.7 million to
reduce amounts outstanding under its senior credit facility, and for
general corporate purposes, including working capital and
acquisitions.
6<PAGE>
<PAGE>
NOTE 5 - STOCK SPLIT
On June 15, 1998, the Company paid a two-for-one stock split,
effected in the form of a 100% stock dividend, to all common
shareholders of record as of June 1, 1998. In connection with the
stock split, the Company issued 29,690,566 shares of Common Stock in
the aggregate (including treasury shares). All earlier references to
shares of the Company's Common Stock contained elsewhere in these
Notes have been retroactively adjusted to reflect the stock split.
NOTE 6 - STOCK REPURCHASES
The Company adopted a share repurchase program in 1998, pursuant
to which it is authorized to repurchase up to 2,000,000 shares of
Common Stock in the open market over a two-year period. To date, the
Company has repurchased an aggregate of 968,000 shares of Common Stock
under this program, at prices ranging from $8.45 to $16.78 per share.
NOTE 7 - EARNINGS PER SHARE AND DIVIDENDS
Basic earnings per share is computed by dividing income available
to common shareholders by the weighted average number of shares of
Class A and Class B Common Stock outstanding during the period.
Shares issued or reacquired during the period have been weighted for
the portion of the period that they were outstanding. Basic earnings
per share has been computed based upon 52,603 shares and 48,558 shares
outstanding for the periods ended April 4, 1999 and April 5, 1998,
respectively. Diluted earnings per share is calculated in a manner
consistent with that of basic earnings per share while giving effect
to all dilutive potential common shares that were outstanding during
the period. Diluted earnings per share has been computed based upon
52,792 shares and 50,778 shares outstanding for the periods ended
April 4, 1999 and April 5, 1998, respectively. For the purposes of
computing earnings per common share and dividends per common share,
the Company is treating as treasury stock (and therefore not
outstanding) the shares that are owned by a wholly-owned subsidiary
and the shares recently repurchased in the open market (an aggregate
of 8,168,000 Class A shares recorded at cost).
The following is a reconciliation from basic earnings per share
to diluted earnings per share for each of the periods presented:
<TABLE>
<CAPTION>
(In Thousands Except Per Share)
Average
For the Three-Month Shares Earnings
Period Ended Net Income Outstanding Per Share
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
April 4, 1999 $ 5,606 52,603 $ .11
Effect of Dilution:
Options -- 189
----------------------------------------------------
Diluted $ 5,606 52,792 $ .11
====================================================
- --------------------------------------------------------------------------------------------------------------------------
April 5, 1998 $ 10,283 48,558 $ .21
Effect of Dilution:
Options -- 2,220
-----------------------------------------------------
Diluted $ 10,283 50,778 $ .20
=====================================================
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
7<PAGE>
<PAGE>
NOTE 8 - COMPREHENSIVE INCOME
Effective the first quarter of 1998, the Company adopted FAS
130, Comprehensive Income . This statement established the standards
for reporting and displaying comprehensive income and its components
(revenues, expenses, gains and losses) as part of a full set of
financial statements. This statement requires that all elements of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Since this statement applies only to the presentation of comprehensive
income, it does not have any impact upon results of operations,
financial position, or cash flows.
NOTE 9 - SEGMENT INFORMATION
During 1998, the Company adopted SFAS 131 which establishes
standards for the way that public business enterprises report
information about operating segments in their financial statements.
The standard defines operating segments as components of an enterprise
about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. The Company's
chief operating decision maker aggregates operating segments based on
the type of products produced by the segment. Based on the
quantitative thresholds specified in SFAS 131, the Company has
determined that it has two reportable segments. The two reportable
segments are Floorcovering Products/Services and Interior Fabrics.
The Floorcovering Products/Services segment manufactures, installs and
services commercial modular and broadloom carpet, while the Interior
Fabrics segment manufactures panel and upholstery fabrics.
The accounting policies of the operating segments are the same
as those described in Summary of Significant Accounting Policies.
Segment amounts disclosed are prior to any elimination entries made in
consolidation. The chief operating decision maker evaluates
performance of the segments based on operating income. Costs excluded
from this profit measure primarily consist of allocated corporate
expenses, interest expense and income taxes. Corporate expenses are
primarily comprised of corporate overhead expenses. Thus, operating
income includes only the costs that are directly attributable to the
operations of the individual segment. Assets not identifiable to any
individual segment are corporate assets, which are primarily comprised
of cash and cash equivalents, short-term investments, intangible
assets and intercompany amounts, which are eliminated in
consolidation.
SEGMENT DISCLOSURES
Summary information by segment follows:
<TABLE>
<CAPTION>
Floorcovering Interior
(in thousands) products/services fabrics Other Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
April 4, 1999
Net sales $245,062 $49,256 $13,548 $307,866
Depreciation and amortization 7,989 2,323 513 10,825
Operating income 18,520 4,514 363 23,397
Total assets 935,446 216,442 46,904 1,198,792
- ---------------------------------------------------------------------------------------------------------------------------------
April 5, 1998
Net sales $252,133 $56,714 $10,105 $318,952
Depreciation and amortization 7,938 2,526 846 11,310
Operating income 19,725 7,617 1,157 28,499
Total assets 906,152 219,944 41,796 1,167,892
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8<PAGE>
<PAGE>
A reconciliation of the Company's total segment operating income,
depreciation and amortization and assets to the corresponding
consolidated amounts follows:
<TABLE>
<CAPTION>
Period Ended
--------------------------------------------------
(in thousands) April 4, 1999 April 5, 1998
<S> <C> <C>
DEPRECIATION AND AMORTIZATION
Total segment depreciation and amortization $10,825 $11,310
Corporate depreciation and amortization 155 745
------ ------
Reported depreciation and amortization $10,980 $12,055
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME
Total segment operating income $23,397 $28,499
Corporate expenses and other reconciling amounts (3,491) (1,361)
------ ------
Reported operating income $19,906 $27,138
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Total segment assets $1,198,792 $1,167,892
Corporate assets and eliminations (153,374) (131,028)
-------- --------
Reported total assets $1,045,418 $1,036,864
</TABLE>
NOTE 10 - SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS
The Guarantor Subsidiaries, which consist of the Company's
principal domestic subsidiaries, are guarantors of the Company's
7.3% senior notes due 2008 and its 9.5% senior subordinated notes due
2005. The Supplemental Guarantor Financial Statements are presented
herein pursuant to requirements of the Commission.
<TABLE>
<CAPTION>
INTERFACE, INC. AND SUBSIDIARIES
NOTE 10 - SUPPLEMENTAL GUARANTOR FINANCIAL STATEMENTS
STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED APRIL 4, 1999
INTERFACE, CONSOLIDATION
NON- INC. AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------- ------------ ------------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales $237,769 $109,246 $ - $ (39,149) $307,866
Cost of sales 173,691 76,716 - (39,149) 211,258
------- ------- ------- ------- -------
Gross profit on sales 64,078 32,530 - - 96,608
Selling, general and 47,202 21,425 8,075 - 76,702
administrative ------- ------- ------- ------- -------
expenses
Operating income 16,876 11,105 (8,075) - 19,906
Other expense (income) 4,366 1,967 4,382 - 10,715
------- ------- ------- ------- -------
Income before taxes on income 12,510 9,138 (12,457) 9,191
and Equity in income of
subsidiaries
Taxes on income 4,879 3,564 ( 4,858) - 3,585
------- ------- ------- ------- -------
Equity in income of - - 13,205 (13,205) -
subsidiaries
Net income applicable to $ 7,631 $ 5,574 $ 5,606 $ (13,205) $ 5,606
common shareholders ======= ======= ======= ========= =======
</TABLE>
9<PAGE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET
APRIL 4, 1999
CONSOLIDATION
NON- INTERFACE, INC. AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------ ------------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 586 $ 5,476 $( 3,114) $ 0 $ 2,948
Accounts receivable 140,529 80,703 (14,711) 0 206,521
Inventories 132,525 68,791 - 0 201,316
Miscellaneous 7,987 26,753 9,942 0 44,682
-------- -------- -------- --------- ----------
Total current assets 281,627 181,723 (7,883) 0 455,467
Property and equipment
less accumulated depreciation 152,964 75,879 14,991 0 243,834
Investment in subsidiaries 30,571 2,635 817,038 (850,244) 0
Miscellaneous 11,195 8,767 39,925 59,887
Excess of cost over net assets 186,431 96,439 3,360 0 286,230
acquired -------- -------- -------- --------- ----------
$662,788 $365,443 $867,431 $(850,244) $1,045,418
======== ======== ======== ========= ==========
LIABILITIES AND COMMON
SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 6,032 $ 11,178 $ 0 $ 0 $ 17,210
Accounts payable 30,530 33,745 368 0 64,643
Accrued expenses 60,074 44,561 (8,241) 0 96,394
Current maturities of long- 1,730 1,079 0 0 2,809
term debt -------- -------- -------- --------- ----------
Total current liabilities 98,366 90,563 (7,873) 0 181,056
Long-term debt, less
current maturities 8,241 54,039 112,879 - 175,159
Senior notes and senior - - 275,000 - 275,000
subordinated notes
Deferred income taxes/other 15,097 4,664 3,591 0 23,352
Minority interests 0 1,897 0 0 1,897
-------- -------- -------- --------- ----------
Total liabilities 121,704 151,163 383,597 0 656,464
Redeemable preferred stock 57,891 0 0 (57,891) 0
Common stock 94,145 102,199 6,086 (196,344) 6,086
Additional paid-in capital 191,411 12,525 233,703 (203,936) 233,703
Retained earnings 200,784 138,176 247,725 (364,244) 222,441
Foreign currency translation
adjustment income (3,147) (38,620) (3,680) 0 (45,447)
Treasury stock, 8,168,000 Class A
shares, at cost 0 0 0 (27,829) (27,829)
-------- -------- -------- --------- ----------
$662,788 $365,443 $867,431 $(850,244) $1,045,418
======== ======== ======== ========= ==========
</TABLE>
10<PAGE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS
ENDED APRIL 4, 1999
INTERFACE, CONSOLIDATION
NON- INC. AND
GUARANTOR GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- ------------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating $ 231 $ (3,281) $(47,674) $ 0 $(50,724)
activities
Cash flows from operating activities:
Cash flows from investing activities:
Purchase of plant and equipment (5,689) (1,279) (2,160) 0 (9,128)
Acquisitions, net of cash acquired 0 0 8,700 0 8,700
Other assets 0 0 (1,576) 0 (1,576)
------ ------ ------ ------ ------
Net cash provided by (used in)
investing activities (5,689) (1,279) 4,964 0 (2,004)
------ ------ ------ ------ ------
Cash flows from financing activities:
Net borrowings (repayments) (101) 4,951 50,191 0 55,041
Proceeds from issuance/repurchase
of common stock 0 0 (6,708) 0 (6,708)
Cash dividends paid 0 0 (2,418) 0 (2,418)
------ ------ ------ ------ ------
Net cash provided by (used in)
financing activities (101) 4,951 41,065 0 45,915
------ ------ ------ ------ ------
Effect of exchange rate change on cash 0 (149) 0 0 (149)
------ ------ ------ ------ ------
Net increase (decrease) in cash (5,559) 242 (1,645) 0 (6,962)
Cash at beginning of year 6,145 5,234 (1,469) 0 9,910
------ ------ ------ ------ ------
Cash at end of year $ 586 $ 5,476 $(3,114) $ 0 $ 2,948
====== ======= ======= ====== =======
</TABLE>
11<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This report contains statements which may constitute "forward-
looking statements" under applicable securities laws, including
statements regarding the intent, belief or current expectations of the
Company and members of its management team, as well as the assumptions
on which such statements are based. Any such forward-looking
statements are not guarantees of future performance and involve risks
and uncertainties, and actual results may differ materially from those
contemplated by such forward-looking statements. Important factors
currently known to management that could cause actual results to
differ materially from those in forward-looking statements are set
forth in the Safe Harbor Compliance Statement for Forward-Looking
Statements included as Exhibit 99.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 3, 1999, and are hereby
incorporated by reference. The Company undertakes no obligation to
update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to
future operating results over time.
General
The Company's revenues are derived from sales of commercial
floorcovering products (primarily modular and broadloom carpet) and
related services, interior fabrics and specialty products. During the
quarter ended April 4, 1999, the Company had revenues and net income
of $307.9 million and $5.6 million, respectively.
The Company's business, as well as the commercial interiors
market in general, is somewhat cyclical in nature. In recent years,
the Company has benefited from a recovery in the U.S. commercial
office market which began in the mid-1990's. However, the commercial
interiors market as a whole has experienced decreased demand levels
over the last two quarters. As a result, the Company's results of
operations, and its prospects for the balance of 1999, have been
adversely affected. A significant sustained downturn in the market
would materially impair the Company's revenues and earnings prospects.
During the fourth quarter of 1998, the Company recorded a pre-tax
restructuring charge in the amount of $25.3 million related to plant
closures and consolidations of operations in Asia, Europe and the
U.S., which resulted in an aggregate headcount reduction of
approximately 287 salaried and hourly employees and the write-down and
disposal of certain assets. The restructuring charge is comprised of
$13.0 million of cash expenditures for severance benefits and
relocation costs (of which $7.0 million remained unpaid at April 4,
1999 and is included in accrued expenses) and $12.3 million of non-
cash charges, primarily for the write-down of impaired assets. The
Company anticipates that the restructuring will be completed by the
end of the third quarter 1999. The restructuring is expected to yield
annual cost savings of approximately $8 million.
Results of Operations
For the three month period ended April 4, 1999, the Company's net
sales decreased $11 million (3.5%) compared with the same period in
1998. The decrease was primarily attributable to (i) decreased sales
volume in the Company's interior fabrics operations resulting from
continued soft market conditions, (ii) a decline in sales of broadloom
carpet in the U.S. by the Company's Bentley Mills subsidiary, (iii) a
decline in sales of broadloom carpet in the United Kingdom, as Firth
repositioned itself in that market by shifting its focus to corporate
accounts, and reducing its emphasis on the hospitality and
transportation market segments, and (iv) a fiscal quarter that was one
week shorter than last year. The decrease was offset somewhat by
increased sales volume (i) in the Company's Asia-Pacific division
which continues to show signs of recovery from the recent economic
downturn in that region, and (ii) in the Company's architectural
products division driven in part by the 1998 acquisition of Atlantic
Access Flooring and its line of steel panel products. Although sales
in the Company's U.S. floorcovering operations were essentially flat,
there was a shift in the relative mix of sales, with increased service
revenues offsetting lower product sales.
Cost of sales, as a percentage of net sales, increased to 68.6%
for the three month period ended April 4, 1999, compared to 66.2% for
the same period in 1998. The increase was primarily attributable to
(i) the failure to fully absorb overhead expenses, as a result of the
decline in sales, and (ii) the shift in the relative mix of sales
towards service revenues, which historically have had lower gross
profit margins than product sales.
Selling, general and administrative expenses, as a percentage of
net sales, declined to 24.9% in the quarter ended April 4, 1999,
compared to 25.3% in the same period in 1998, primarily as a result of
the Company's recent restructuring activities, as well as the
consolidation of certain of its operations in the Americas through a
"shared services" approach.
12<PAGE>
<PAGE>
For the three month period ended April 4, 1999, other expenses
increased $.3 million compared to the same period in 1998, due
primarily to higher overall levels of bank debt resulting from a
seasonal reduction in accruals related to employee bonuses and profit-
sharing payments, and certain pension payments related to the Firth
acquisition.
As a result of the aforementioned factors, the Company's net
income decreased 45.5% to $5.6 million for the first quarter, as
compared to the same period last year.
Liquidity and Capital Resources
The Company's primary source of cash during the three months
ended April 4, 1999 was $55 million from long-term financing.
The primary uses of cash during the three months ended April 4, 1999
were (i) $10.0 million for European minimum pension obligations, (ii)
$9.1 million for additions to property and equipment in the Company's
manufacturing facilities, and (iii) $7.3 million for repurchases of
common stock. Management believes that cash provided by operations
and long-term loan commitments will provide adequate funds for current
commitments and other requirements in the foreseeable future.
In 1998, the Company adopted a share repurchase program, pursuant
to which it is authorized to repurchase up to 2,000,000 shares of
Class A Common Stock in the open market over a two-year period. During
the quarter ended April 4, 1999, the Company repurchased 793,000
shares of Class A Common Stock at an average price of $9.00 per share.
To date, the Company has repurchased an aggregate of 968,000 shares
under this program.
Year 2000
As is the case with other companies using computers in their
operations, the Company is faced with the task of addressing the Year
2000 issue. The Year 2000 issue arises from the widespread use of
computer programs that rely on two-digit codes to perform computations
or decision-making functions. The Company has done a comprehensive
review of its computer programs to identify the systems that would be
affected by the Year 2000 issue. The Company has retained IBM
Corporation to assist in its Year 2000 conversion process.
The Company categorizes its systems into one of two categories:
those that are linked to the Company's AS-400 computer network ("IT
Systems"), and those that are not ("Non-IT Systems"). The Company
currently estimates the total cost of modifying its IT Systems to be
Year 2000 ready to be approximately $23.4 million. Of such amount,
approximately $15.4 million is attributable to the cost of new
hardware and software which will be required in connection with the
global consolidation of the Company's management and financial
accounting systems. This new equipment and upgraded technology will
have a definable value lasting beyond the Year 2000. In these
instances, where Year 2000 compliance is ancillary, the Company
intends to capitalize and depreciate such costs. The remaining $8.0
million (based on current estimates) will be expensed as incurred.
With respect to Non-IT Systems, the Company currently estimates the
total cost of the modifications necessary to be Year 2000 ready to be
approximately $2 million, although it could be more. The Company
intends to fund these costs through operating cash flows.
During the quarter ended April 4, 1999, the Company expensed
approximately $1.1 million in regard to modifications of both IT
Systems and Non-IT Systems. To date, the Company has expensed
approximately $6.3 million in the aggregate in regard to such
modifications. The Company does not separately track its internal
costs related to Year 2000 compliance, the majority of which are
compensation expenses for employees in its information technology
department.
With the exception of Asia-Pacific, the Company currently
anticipates that the modifications to both its IT Systems and its Non-
IT Systems will be completed by the end of August 1999, although it
could be later. (Modifications to Non-IT Systems in Asia-Pacific will
not be completed until the fourth quarter of 1999). The balance of
1999 will then be available for testing the modifications, as well as
for training employees in the use of new hardware and software. The
Company has not deferred in any material respect any of its other
information technology projects to accommodate its Year 2000
compliance efforts.
The Company is still in the process of reviewing its Year 2000
exposure to third party suppliers and customers. Surveys have been
sent to critical suppliers and, in certain cases, on-site Year 2000
audits are being performed. The Company's most reasonably likely
worst-case Year 2000 scenario is that a key supplier's systems will
malfunction and, as a result, the Company will suffer a period of
business interruption during which it is unable to meet related
obligations to its customers. The Company is currently unaware of any
Year 2000 problems faced by any suppliers which are likely to have a
material adverse effect on the Company. However, many third parties
are reluctant to provide detailed information concerning the status of
their Year 2000 readiness, particularly if they have not completed an
analysis of their systems.
13<PAGE>
<PAGE>
The Company is in the process of developing and implementing
contingency plans in the event of supply problems. The principal
contingencies under consideration include identifying and qualifying
substitute suppliers for key materials, stockpiling certain critical
supplies and pursuing long-term supply contracts providing the Company
with preferential treatment in the event of shortages. These plans are
targeted for completion by the end of the third quarter of 1999.
The Company believes that no single customer represents so
significant a portion of its revenues that failure on the part of such
a customer to plan effectively for Year 2000 would materially impact
the Company's financial condition. In addition, the Company believes
that the diversity of its customer base minimizes the potential
financial impact of such an event. However, if broad customer buying
trends are reduced due to Year 2000 issues, the Company's revenues and
profitability could be adversely affected.
There can be no guarantee that the foregoing cost estimates or
deadlines will be achieved and actual results could differ from those
anticipated. Specific factors that might cause differences include,
but are not limited to, the ability to locate and correct all relevant
computer codes, and the ability of suppliers, customers and other
companies on which the Company relies to modify or convert their
systems to be Year 2000 compliant. This risk is particularly acute
with respect to non-U.S. third parties, as it is widely reported that
many non-U.S. businesses and governments are not addressing their Year
2000 issues on a timely basis.
Euro Conversion
A single currency called the euro was introduced in Europe on
January 1, 1999. Eleven of the fifteen member countries of the
European Union adopted the euro as their common legal currency as of
that date. Fixed conversion rates between these participating
countries' existing currencies (the "legacy currencies") and the euro
were established as of that date. The legacy currencies will remain
legal tender as denominations of the euro until at least January 1,
2002 (but not later than July 1, 2002). During this transition period,
parties may settle transactions using either the euro or a
participating country's legacy currency.
The increased price transparency resulting from the use of a
single currency in the eleven participating countries may affect the
ability of the Company to price its products differently in various
European markets.
Introduction of the euro may reduce the amount of the Company's
exposure to changes in foreign exchange rates, due to the netting
effect of having assets and liabilities denominated in a single
currency as opposed to the various legacy currencies. Conversely,
because there will be less diversity in the Company's exposure to
foreign currencies, movements in the euro's value in U.S. dollars
could have a more pronounced effect, whether positive or negative. As
a result of the adoption of the euro, the Company's foreign exchange
hedging costs could be reduced in the future.
Certain of the Company's business functions have introduced euro-
capability as of January 1, 1999, including, for example, systems for
making and receiving certain payments, pricing and invoicing. Other
business functions will be converted for the euro by the end of the
transition period (December 31, 2001), but may be converted earlier
where operationally efficient or cost-effective, or to meet customer
needs. The Company does not expect the costs associated with these
modifications to have a material adverse effect on future operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of the scope and volume of its global operations,
the Company is exposed to an element of market risk from changes
in interest rates and foreign currency exchange rates. The Company's
results of operations and financial condition could be impacted by\
this risk. The Company manages its exposure to market risk
through its regular operating and financial activities and, to the
extent appropriate, through the use of derivative financial
instruments.
The Company employs derivative financial instruments as risk
management tools and not for speculative or trading purposes. The
Company monitors the use of derivative financial instruments through
the use of objective measurable systems, well-defined market and
credit risk limits, and timely reports to senior management according
to prescribed guidelines. The Company has established strict
counterparty credit guidelines and only enters into transactions with
financial institutions with a rating of investment grade or better. As
a result, the Company considers the risk of counterparty default to be
minimal.
INTEREST RATE MARKET RISK EXPOSURE. Changes in interest rates
affect the interest paid on certain of the Company's debt. To mitigate
the impact of fluctuations in interest rates, management of the
Company has developed and implemented a policy to maintain the
percentage of fixed and variable rate debt within certain parameters.
The Company maintains the fixed/variable rate mix within these
14<PAGE>
<PAGE>
parameters either by borrowing on a fixed-rate basis or entering into
interest rate swap transactions. In the interest rate swaps, the
Company agrees to exchange, at specified intervals, the difference
between fixed and variable interest amounts calculated by reference to
an agreed-upon notional principal linked to LIBOR. The interest rate
swap agreements generally have maturity dates ranging from fifteen to
twenty-four months.
At April 4, 1999, the Company had utilized interest rate swap
agreements to effectively convert approximately $43.7 million of
variable rate debt to fixed rate debt. The Company anticipates that
for the balance of fiscal 1999 it will utilize swap agreements or
other derivative financial instruments to convert comparable amounts
of variable rate to fixed rate debt.
FOREIGN CURRENCY EXCHANGE MARKET RISK EXPOSURE. A significant
portion of the Company's operations consists of manufacturing and
sales activities in foreign jurisdictions. The Company manufactures
its products in the U.S., Canada, England, Northern Ireland, the
Netherlands, Australia and Thailand, and sells its products in more
than 100 countries. As a result, the Company's financial results could
be significantly affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in the foreign
markets in which the Company distributes its products. The Company's
operating results are exposed to changes in exchange rates between the
U.S. dollar and many other currencies, including the Dutch guilder,
British pound sterling, German mark, French franc, Canadian dollar,
Australian dollar, Thai baht, Japanese yen, and, beginning in 1999,
the euro. When the U.S. dollar strengthens against a foreign currency,
the value of anticipated sales in those currencies decreases, and
vice-versa. Additionally, to the extent the Company's foreign
operations with functional currencies other than the U.S. dollar
transact business in countries other than the U.S., exchange rate
changes between two foreign currencies could ultimately impact the
Company. Finally, because the Company reports in U.S. dollars on a
consolidated basis, foreign currency exchange fluctuations can have a
translation impact on the Company's financial position.
To mitigate the short-term effect of changes in currency exchange
rates on the Company's sales denominated in foreign currencies, the
Company regularly hedges by entering into currency swap contracts to
hedge certain firm sales commitments denominated in foreign
currencies. In these currency swap agreements, the Company and a
counterparty financial institution exchange equal initial principal
amounts of two currencies at the spot exchange rate. Over the term of
the swap contract, the Company and the counterparty exchange interest
payments in their swapped currencies. At maturity, the principal
amount is reswapped, at the contractual exchange rate. At April 4,
1999, the contracts served to hedge firmly committed sales in Dutch
guilders and Japanese yen. The contracts generally have maturity
dates of fifteen to twenty-four months.
At April 4, 1999, the Company had approximately $10.5 million
(notional amount) of foreign currency hedge contracts outstanding.
The Company expects to hedge a comparable notional amount for the
balance of fiscal 1999. The Company, as of April 4, 1999, recognized a
$13.7 million decrease in its foreign currency translation adjustment
account compared to January 3, 1999 because of the weakening of
certain currencies against the U.S. dollar and the transition to the
euro as the local reporting currency in Europe.
SENSITIVITY ANALYSIS. For purposes of specific risk analysis,
the Company uses sensitivity analysis to measure the impact that
market risk may have on the fair values of the Company's market
sensitive instruments.
To perform sensitivity analysis, the Company assesses the risk of
loss in fair values associated with the impact of hypothetical changes
in interest rates and foreign currency exchange rates on market
sensitive instruments. The market value of instruments affected by
interest rate and foreign currency exchange rate risk is computed
based on the present value of future cash flows as impacted by the
changes in the rates attributable to the market risk being measured.
The discount rates used for the present value computations were
selected based on market interest and foreign currency exchange rates
in effect at April 4, 1999. The market values that result from these
computations are compared with the market values of these financial
instruments at April 4, 1999. The differences in this comparison are
the hypothetical gains or losses associated with each type of risk.
As of April 4, 1999, based on a hypothetical immediate 150 basis
point increase in interest rates, with all other variables held
constant, the market value of the Company's fixed rate long-term debt
would be impacted by a net decrease of $15.7 million. Conversely, a
150 basis point decrease in interest rates would result in a net
increase in the market value of the Company's fixed rate long-term
debt of $25.9 million. At January 3, 1999, a 150 basis point movement
would have resulted in the same changes.
As of April 4, 1999, a 10% movement in the levels of foreign
currency exchange rates against the U.S. dollar, with all other
variables held constant, would result in a decrease in the fair value
of the Company's financial instruments of $1.3 million or an increase
in the fair value of the Company's financial instruments of $1.1
million. At January 3, 1999, a 10% movement would have resulted in
the same changes. As the impact of offsetting changes in the fair
market value of the Company's net foreign investments is not included
in the sensitivity model, these results are not indicative of the
Company's actual exposure to foreign currency exchange risk.
15<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 1998, the Company sent two "cease and desist"
letters to Collins & Aikman Floorcoverings, Inc. ("CAF"), demanding
that CAF cease manufacturing certain carpet products which the Company
believes infringe upon certain of its copyrighted product designs.
The Company and CAF subsequently began settlement negotiations in an
attempt to resolve the Company's claims.
On July 28, 1998, CAF filed a complaint (the "Complaint")
against the Company and certain other parties in the U.S. District
Court for the Northern District of Georgia, Atlanta Division. In the
Complaint, CAF alleges that the Company has infringed upon certain of
CAF's copyrighted product designs. The Complaint also contains a
claim against the Company for tortious interference with contractual
rights relating to a consulting agreement between CAF and David Oakey,
a former consultant of CAF and current consultant of the Company. CAF
is seeking damages and injunctive relief in connection with the
foregoing claims.
On September 28, 1998, the Company filed its Answer and
Counterclaims to the Complaint, which includes certain counterclaims
against CAF for copyright infringement. The Company continues to
believe that CAF's claims are unfounded and that the Company has
meritorious defenses to such claims. Moreover, the Company intends to
aggressively assert its claims against CAF.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES. During the fiscal
quarter ended April 4, 1999, the Company issued an aggregate of 79,950
shares of its Class A Common Stock that were not registered under the
Securities Act of 1933 (the "Securities Act"). The shares, in
combination with cash, were issued to four individuals as
consideration in the acquisition of Premier Floors, Inc. The market
price on the date of issuance was $9.88 per share. The issuance of
the foregoing shares is exempt from registration under the Securities
Act pursuant to Section 4(2) of the Securities Act, or Regulation D
promulgated thereunder, as a transaction by an issuer not involving a
public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<C> <S>
3.1 Restated Articles of Incorporation (included as Exhibit 3.1 to
the Company's quarterly report on Form 10-Q for the quarter
ended July 5, 1998, previously filed with the Commission and
incorporated herein by reference).
3.2 Bylaws, as amended (included as Exhibit 3.2 to the Company's
quarterly report on Form 10-Q for the quarter ended April 1,
1990, previously filed with the Commission and incorporated
herein by reference).
4.1 See Exhibits 3.1 and 3.2 for provisions in the Company's
Articles of Incorporation and Bylaws defining the rights of
holders of Common Stock of the Company.
16<PAGE>
<PAGE>
4.2 Rights Agreement between the Company and Wachovia Bank, N.A.,
dated as of March 4, 1998, with an effective date of March 16,
1998 (included as Exhibit 10.1A to the Company's registration
statement on Form 8-A/A dated March 12, 1998, previously filed
with the Commission and incorporated herein by reference).
4.3 Indenture governing the Company's 9.5% Senior Subordinated Notes
due 2005, dated as of November 15, 1995, among the Company,
certain U.S. subsidiaries of the Company, as Guarantors, and
First Union National Bank of Georgia, as Trustee (included as
Exhibit 4.1 to the Company's registration statement on Form S-4,
File No. 33-65201, previously filed with the Commission and
incorporated herein by reference); and Supplement No. 1 to
Indenture, dated as of December 27, 1996 (included as Exhibit
4.2(b) to the Company's Annual Report on Form 10-K for the year
ended December 29, 1996, previously filed with the Commission
and incorporated herein by reference).
4.4 Form of Indenture governing the Company's 7.3% senior notes due
2008, among the Company, certain U.S. subsidiaries of the
Company, as Guarantors, and First Union National Bank, as
trustee (included as Exhibit 4.1 to the Company's registration
statement on Form S-3/A, File No. 333-46611, previously filed
with the Commission and incorporated herein by reference).
10.1 Second Amendment to Employment Agreement of Ray C. Anderson
dated January 14, 1999.
10.2 Second Amendment to Change in Control Agreement of Ray C.
Anderson dated January 14, 1999.
In accordance with Instruction 2 to Item 601 of Regulation S-K,
the following agreements were not filed as exhibits because they
are substantially identical in all material respects to Exhibits
10.1 and 10.2:
Second Amendment to Employment Agreement of Michael D. Bertolucci dated January 14, 1999.
Second Amendment to Change in Control Agreement of Michael D. Bertolucci dated January 14, 1999.
Second Amendment to Employment Agreement of Brian L. DeMoura dated January 14, 1999.
Second Amendment to Change in Control Agreement of Brian L. DeMoura dated January 14, 1999.
Second Amendment to Employment Agreement of Charles R. Eitel dated January 14, 1999.
Second Amendment to Change in Control Agreement of Charles R. Eitel dated January 14, 1999.
Second Amendment to Employment Agreement of Jeffrey A. Goldberg dated January 14, 1999.
Second Amendment to Change in Control Agreement of Jeffrey A. Goldberg dated January 14, 1999.
Second Amendment to Employment Agreement of Daniel T. Hendrix dated January 14, 1999.
Second Amendment to Change in Control Agreement of Daniel T. Hendrix dated January 14, 1999.
Second Amendment to Employment Agreement of Alan S. Kabus dated January 14, 1999.
Second Amendment to Change in Control Agreement of Alan S. Kabus dated January 14, 1999.
Second Amendment to Employment Agreement of Joyce D. LaValle dated January 14, 1999.
Second Amendment to Change in Control Agreement of Joyce D. LaValle dated January 14, 1999.
Second Amendment to Employment Agreement of John R. Wells dated January 14, 1999.
Second Amendment to Change in Control Agreement of John R. Wells dated January 14, 1999.
Second Amendment to Employment Agreement of Gordon D. Whitener dated January 14, 1999.
Second Amendment to Change in Control Agreement of Gordon D. Whitener dated January 14, 1999.
Second Amendment to Employment Agreement of Raymond S. Willoch dated January 14, 1999.
Second Amendment to Change in Control Agreement of Raymond S. Willoch dated January 14, 1999.
</TABLE>
17<PAGE>
<PAGE>
27.1 Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K were filed during the quarter ended April
4, 1999.
18<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
INTERFACE, INC.
Date: May 17, 1999 By: /s/ Daniel T. Hendrix
Daniel T. Hendrix
Senior Vice President
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.1 Second Amendment to Employment Agreement of Ray C. Anderson
dated January 14, 1999.
10.2 Second Amendment to Change in Control Agreement of Ray C.
Anderson dated January 14, 1999.
27.1 Financial Data Schedule.
Exhibit 10.1
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement ("Amendment") is
made and entered into as of the 14th day of January, 1999, by and
between Interface, Inc. (the "Company") and Ray C. Anderson
("Executive").
W I T N E S S E T H :
WHEREAS, the Company and Executive did enter into that certain
Employment Agreement dated as of April 1, 1997, as previously amended
(the "Agreement"); and
WHEREAS, the parties hereto desire to modify the Agreement in
certain respects, as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the same meanings ascribed to
such terms in the Agreement.
2. Section 5(c) of the Agreement is hereby amended to delete
the language "Except to the extent provided in clause (x) hereof,"
which appears at the beginning of the penultimate sentence of Section
5(c). That sentence shall now read as follows: "Executive shall have
no duty to mitigate any of the damages payable hereunder."
3. Section 5(c)(x) of the Agreement is hereby amended to delete
all of clause (x) except the last sentence thereof.
4. The Agreement, as expressly modified by this Amendment,
shall remain in full force and effect in accordance with its terms and
continue to bind the parties.
IN WITNESS WHEREOF, Executive has executed this Amendment, and
the Company has caused this Amendment to be executed by a duly
authorized representative, as of the date first set forth above.
INTERFACE, INC.
By: /s/ Charles R. Eitel
Charles R. Eitel
President
EXECUTIVE:
/s/ Ray C. Anderson
Ray C. Anderson
Exhibit 10.2
SECOND AMENDMENT TO CHANGE IN CONTROL AGREEMENT
This Second Amendment to Change in Control Agreement
("Amendment") is made and entered into as of the 14th day of January,
1999, by and between Interface, Inc. (the "Company") and Ray C.
Anderson ("Executive").
W I T N E S S E T H :
WHEREAS, the Company and Executive did enter into that certain
Change in Control Agreement dated as of April 1, 1997, as previously
amended (the "Agreement"); and
WHEREAS, the parties hereto desire to modify the Agreement in
certain respects, as set forth in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the same meanings ascribed to
such terms in the Agreement.
2. Section 4(c) of the Agreement is hereby deleted in its
entirety and the following is substituted in its place:
(c) Benefits to be Provided. If Executive becomes
-----------------------
eligible for benefits under subsection (b) above, the
Company shall pay or provide to Executive the compensation
and benefits set forth in this subsection (c); provided,
however, that the compensation and benefits to be paid or
provided pursuant to paragraphs (i) through (iv) of this
subsection (c) shall be reduced to the extent that Executive
receives or is entitled to receive upon Executive's
termination the compensation and benefits (but only to the
extent Executive actually receives such compensation and
benefits) described in paragraphs (i) through (iv) of this
subsection (c) pursuant to the terms of an employment
agreement with the Company or as a result of a breach by the
Company of the employment agreement; and, provided, further,
after taking into consideration any such reductions,
Executive shall continue to be entitled to receive in the
aggregate under this Agreement and the employment agreement
an amount of compensation and benefits equal to the full
amount of compensation and benefits provided under this
Agreement, and any amounts paid under paragraphs (i), (ii)
and (iv) of this Agreement shall be paid in the manner
provided in such paragraphs.
3. Section 5 of the Agreement is hereby deleted in its entirety
and the following is substituted in its place:
1<PAGE>
<PAGE>
5. Payments to Cover Excise Taxes.
-------------------------------
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined (as
hereafter provided) that any payment or distribution to or
for Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
pursuant to or by reason of any other agreement, policy,
plan, program or arrangement (including, without limitation,
any employment agreement, Stock Plan or salary continuation
agreement), or similar right (a "Payment"), would be subject
to the excise tax imposed by Section 4999 of the Code (or
any successor provisions thereto), or any interest or
penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereafter
collectively referred to as the "Excise Tax"), then
Executive shall be entitled to receive an additional payment
or payments (a "Gross-Up Payment") from the Company. The
total amount of the Gross-Up Payment shall be an amount such
that, after payment by (or on behalf of) Executive of any
Excise Tax and all federal, state and other taxes (including
any interest or penalties imposed with respect to such
taxes) imposed upon the Gross-Up Payment, the remaining
amount of the Gross-Up Payment is equal to the Excise Tax
imposed upon the Payment(s). For purposes of clarity, the
amount of the Gross-Up Payment shall be that amount
necessary to pay the Excise Tax in full and all taxes
assessed upon the Gross-Up Payment.
(b) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Section 5 and the
amount of such Gross-Up Payment shall be made by an
accounting firm selected by the Company, and reasonably
acceptable to Executive, which is then designated as one of
the five largest accounting firms in the United States (the
"Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed
supporting calculations and documentation to the Company and
Executive as promptly as practicable after such calculation
is requested by the Company or by Executive with respect to
a Payment (or Payments), and if the Accounting Firm
determines that no Excise Tax is payable by Executive with
respect to a Payment (or Payments), it shall furnish
Executive with an opinion reasonably acceptable to Executive
that no Excise Tax will be imposed with respect to any such
Payment(s). Within 15 days of the delivery of the
Determination to Executive, Executive shall have the right
to dispute the Determination (the "Dispute"). The Gross-Up
Payment, if any, as determined pursuant to this Section 5
shall be paid by the Company to Executive within 15 days of
- 2 -
<PAGE>
<PAGE>
the receipt of the Accounting Firm's Determination. The
existence of the Dispute shall not in any way affect the
right of Executive to receive the Gross-Up Payment in
accordance with the Determination. If there is no Dispute,
the Determination shall be binding, final and conclusive
upon the Company and Executive subject to the application of
Section 5(c).
(c) As a result of the uncertainty in the application
of Sections 4999 and 280G of the Code, it is possible that a
Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an "Excess Payment") or a Gross-
Up Payment (or a portion thereof) which should have been
paid will not have been paid (an "Underpayment"). An
Underpayment shall be deemed to have occurred upon the
earliest to occur of the following events: (i) upon notice
(formal or informal) to Executive from any governmental
taxing authority that the tax liability of Executive
(whether in respect of the then current taxable year of
Executive or in respect of any prior taxable year of
Executive) may be increased by reason of the imposition of
the Excise Tax on a Payment (or Payments) with respect to
which the Company has failed to make a sufficient Gross-Up
Payment, (ii) upon a determination by a court, (iii) by
reason of a determination by the Company (which shall
include the position taken by the Company, or its
consolidated group, on its federal income tax return), or
(iv) upon the resolution to the satisfaction of Executive of
the Dispute. If any Underpayment occurs, Executive shall
promptly notify the Company and the Company shall pay to
Executive within 15 days of the date the Underpayment is
deemed to have occurred under (i), (ii), (iii) or (iv)
above, but in no event less than 5 days prior to the date on
which the applicable government taxing authority has
requested payment, an additional Gross-Up Payment equal to
the amount of the Underpayment plus any interest and
penalties imposed on the Underpayment.
An Excess Payment shall be deemed to have occurred upon
a "Final Determination" (as hereinafter defined) that the
Excise Tax shall not be imposed upon any Payment(s) (or
portion of a Payment) with respect to which Executive had
previously received a Gross-Up Payment. A Final
Determination shall be deemed to have occurred when
Executive has received from the applicable governmental
taxing authority a refund of taxes or other reduction in his
tax liability by reason of the Excess Payment and upon
either (i) the date a determination is made by, or an
agreement is entered into with, the applicable governmental
taxing authority which finally and conclusively binds
Executive and such taxing authority, or in the event that a
claim is brought before a court of competent jurisdiction,
the date upon which a final determination has been made by
such court and either all appeals have been taken and
finally resolved or the time for all appeals has expired, or
(ii) the statute of limitations with respect to Executive's
applicable tax return has expired. If an Excess Payment is
determined to have been made, the amount of the Excess
Payment shall be treated as a loan by the Company to
Executive and Executive shall pay to the Company within
15 days following demand (but not less than 30 days after
the determination of such Excess Payment) the amount of the
Excess Payment plus interest at an annual rate equal to the
rate provided for in Section 1274(b)(2)(B) of the Code from
the date the Gross-Up Payment (to which the Excess Payment
relates) was paid to Executive until the date of repayment
to the Company.
(d) Notwithstanding anything contained in this
Agreement to the contrary, in the event that, according to
- 3 -
<PAGE>
<PAGE>
the Determination, an Excise Tax will be imposed on any
Payment(s), the Company shall pay to the applicable
government taxing authorities as Excise Tax withholding, the
amount of any Excise Tax that the Company has actually
withheld from the Payment(s); provided, that the Company's
payment of withheld Excise Tax shall not alter the Company's
obligation to pay the Gross-Up Payment required under this
Section 5.
(e) Executive and the Company shall each provide the
Accounting Firm access to and copies of any books, records
and documents in the possession of the Company or Executive,
as the case may be, reasonably requested by the Accounting
Firm, and otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the
Determination contemplated by Section 5(b) hereof.
(f) The fees and expenses of the Accounting Firm for
its services in connection with the Determination and
calculations contemplated by Section 5(b) shall be paid by
the Company.
4. The Agreement, as expressly modified by this Amendment,
shall remain in full force and effect in accordance with its terms and
continue to bind the parties.
IN WITNESS WHEREOF, Executive has executed this Amendment, and
the Company has caused this Amendment to be executed by a duly
authorized representative, as of the date first set forth above.
INTERFACE, INC.
By: /s/ Charles R. Eitel
Charles R. Eitel
President
EXECUTIVE:
/s/ Ray C. Anderson
Ray C. Anderson
- 4 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED APRIL 4, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000715787
<NAME> INTERFACE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-04-1999
<CASH> 2,948
<SECURITIES> 0
<RECEIVABLES> 214,937
<ALLOWANCES> 8,416
<INVENTORY> 201,316
<CURRENT-ASSETS> 455,467
<PP&E> 484,454
<DEPRECIATION> 240,620
<TOTAL-ASSETS> 1,045,418
<CURRENT-LIABILITIES> 181,056
<BONDS> 450,159
0
0
<COMMON> 6,086
<OTHER-SE> 384,765
<TOTAL-LIABILITY-AND-EQUITY> 1,045,418
<SALES> 307,866
<TOTAL-REVENUES> 307,866
<CGS> 211,258
<TOTAL-COSTS> 287,960
<OTHER-EXPENSES> 1,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,615
<INCOME-PRETAX> 9,191
<INCOME-TAX> 3,585
<INCOME-CONTINUING> 5,606
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,606
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
